Risk Management in Creative Contracting

Construction's $1B risk allocation problem. That NOBODY wants to address: When clients provide site data with "use at your own risk" disclaimers, they're not eliminating risk - just creating a ticking time bomb. The Australian Constructors Association and Consult Australia have joined forces to tackle this issue through their "Partnership for Change" initiative: What reliance information includes: - Geotechnical reports - Concept/reference designs - Utilities data - As-built drawings - Contamination reports - Condition of existing assets The impossible position for tenderers: → Cannot verify during tight tender periods → Have no contractual relationship with the original advisors → Must accept "all risk" clauses or be disqualified → Receive zero relief when information proves inaccurate The partnership recommends 2 approaches: PREFERRED APPROACH: - Client secures third-party reliance from original advisors - Original consultants allow reliance for project delivery - No expectation of 100% accuracy, but a mechanism for collaboration when issues arise - Clear risk allocation based on ability to control FALLBACK POSITION: - Re-investigation of reliance information - Early Contractor Involvement (ECI) to assess data collaboratively - Provisional sums with extension of time provisions - Baseline reports that quantify specific risk thresholds Proof these approaches work: Level Crossing Removal Project's alliance model delivered dramatic improvements: - Competitive bid: 5% estimate omissions vs Alliance: 0.9% - Competitive bid: 6.6% cost overrun vs Alliance: 2.2% underrun - 88 weeks tender time reduced to 38 weeks Snowy 2.0 Pumped Storage Project implemented a geotechnical baseline report (GBR) that: - Set out clear risk allocation between client and tenderer - Created a principled sharing of complex geological risks - Prevented tenderers from assuming unknowable risks - Established reasonable expectations for all parties As the partnership paper states: "It is incorrect to assume that because a risk is deemed to have been transferred that it no longer exists." Risk transfer isn't risk management. It's risk multiplication. Has your organisation implemented any of these collaborative risk approaches? What were the results? 

One of the worst feelings working on contracts is when you knowingly sign a terrible contract. You may have no leverage and be stuck with the counterparty's standard terms. You may be doing a deal with a counterparty only willing to move forward on one-sided terms. Of course, you can always choose to walk away and not sign. That's what most lawyers will advise because doing no deal is often better than doing a bad deal. But sometimes companies make a risk decision that doing no deal in this case is a worse outcome than signing a bad deal. While you may be stuck without typical contractual protections and options, there may be things you can do before and after you sign the contract to protect the company. 1. Try to shorten the term of the agreement – Signing unfavorable contracts is risky, but it becomes much riskier when you are locked in for a longer term. Try to reduce the term to your minimum viable length that still makes it worthwhile to preserve other options if things turn out as you fear. 2. Shift what you can to the statement of work or order form – Moving concepts to the statement of work (SOW) or order form may make it easier to make changes during the term. Most companies have less review and scrutiny over those changes. Your relationship lead at the counterparty may be able to make adjustments that you wouldn’t get through as a formal amendment. 3. Reduce the purchase scope even if it leads to a higher price – See if you can reduce the minimum purchase quantity or feature set, even if it means paying more per unit or hour. Think of that additional per-unit fee as a risk premium. It may give you options to reduce the amount of damage or loss you face from the deal if things go sideways. 4. If payment terms are the problem, talk to Finance about the best strategy – If the payment terms are onerous or have severe consequences for any delay, have a conversation with your Finance team. You may be able to reduce that risk with prepayment or extra monitoring to ensure no problems occur. 5. If you are stuck with low liability limits, look into additional insurance or resources – If you are facing low liability limits, explore operational strategies to reduce the risks. These include getting additional insurance, adding more technology to monitor and track, or hiring more people to oversee the work. These things make it easier to stop little problems from becoming big ones. 6. If it is just a bad deal overall, start evaluating other vendors and solutions – Work in parallel to identify alternative paths that might meet your needs. That diligence may clarify available options or your lack of them. You should also consider how to expand your options through operational changes or hiring for specific skillsets. Don’t wait for trouble to happen. Do what you can to reduce your vulnerability before and after entering into a terrible deal. What other advice would you add for dealing with terrible contracts? #Contracts

Every contract tells a story—or it should. A well-negotiated agreement is more than a formality; it’s a roadmap through uncertainty, a pre-nup for what-ifs, and a mirror of how much respect the parties have for the future. But when things went sideways at USAID—when programs were suspended, businesses crumbled, and livelihoods were disrupted—too many implementers discovered they hadn’t written their story. They had recycled one. 🔁 Boilerplate. Generic. Cut-and-paste terms from contracts past, wielded like talismans against future complexity. The result? • Payment delays. • Subcontractor disputes over what “reasonable costs” actually meant. • Murky termination clauses that protected no one. • And yes, bad blood—between primes, subs, and the very agency meant to be the partner. Contracting isn’t a paperwork exercise. It’s risk management, crisis planning, and values—in writing. Imagine if the subaward agreements had actually contemplated what would happen in a full or partial suspension. If indirect cost treatment had been spelled out with clarity. If terms were tailored, not templated. It’s not just about preventing chaos—it’s about building smarter, more respectful relationships from the start. Contracts should reflect reality, not ritual. What this moment demands is a new kind of skill set: one that blends legal precision with strategic empathy. The ability to draft with foresight, not fear. To negotiate terms that breathe, not bind. To document partnerships in a way that honors the complexity of the work, while simplifying the path forward. This isn’t about making contracts longer. It’s about making them smarter.

This recent paper by Marzieh Khakifirooz Michel FATHI and Alexandre Dolgui in the special issue in honor of Professor Suresh P. Sethi, offers a sweeping, over-the-years retrospective on his influential body of work, showing how innovative risk‑management mechanisms in supply chain contracts can directly boost sales performance. By synthesizing dozens of analytical models—from buyback agreements to advance selling, platform data sharing, financing, and quantity‑flexibility options—the authors reveal a central insight: when contracts reallocate risk to the party best able to bear it, suppliers and retailers behave more boldly, stock more inventory, set better prices, and ultimately sell more. Rather than treating risk management as a defensive posture, Sethi’s research reframes it as a proactive sales lever.   A key theme running through the review is that different risks require different contract tools. Inventory and leftover‑stock risks are mitigated through buybacks; demand‑forecast risk through advance selling and information sharing; behavioral risks through refunds and price guarantees; and capacity or market‑access risks through push‑pull arrangements or dual‑sourcing diversification. Importantly, many of these mechanisms behave in a nonlinear way—buybacks, for example, significantly increase sales only when uncertainty sits in a “sweet spot.” The takeaway: there is no one‑size‑fits‑all fix, and contract effectiveness hinges on matching the right lever with the right risk environment.   As modern supply chains evolve from simple supplier–retailer relationships into platform‑mediated, multi‑channel ecosystems, Sethi’s frameworks adapt seamlessly. The article highlights how digital platforms can strategically use information sharing, commission structures, and service investments to manage risk, encourage supplier participation, and create “managed competition” that lifts total market sales. These insights extend classical contract theory into the world of Amazon‑like marketplaces, where risk isn’t just about demand or inventory—it’s about data power, channel entry, and ecosystem design.   The authors close by mapping future research opportunities, from real‑time adaptive contracts and AI‑driven demand learning to sustainability‑linked incentives and multi‑tier contracting. The overarching message: effective risk management is not merely protective—it is transformative. When used as a strategic design tool, contracts become engines for stronger alignment, higher channel efficiency, and expanded market demand.

Contractor management is one of the most important areas of health and safety, yet it’s one of the least discussed. The reality is that contractors are often an organisation’s biggest risk. You’re introducing an unknown factor into an environment that’s already high risk. If you don’t have the right approach, you’re gambling with outcomes you can’t afford. 𝗔𝗻 𝗲𝗳𝗳𝗲𝗰𝘁𝗶𝘃𝗲 𝗰𝗼𝗻𝘁𝗿𝗮𝗰𝘁𝗼𝗿 𝗺𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 𝗽𝗿𝗼𝗰𝗲𝘀𝘀 𝗵𝗮𝘀 𝗳𝗼𝘂𝗿 𝗰𝗿𝗶𝘁𝗶𝗰𝗮𝗹 𝗽𝗵𝗮𝘀𝗲𝘀: 𝗣𝗿𝗲𝗾𝘂𝗮𝗹𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻 – but done properly. Templates alone won’t cut it. Prequalification must be weighted against the actual risk profile of the work being done. 𝗖𝗹𝗲𝗮𝗿 𝗮𝗰𝗰𝗼𝘂𝗻𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝗶𝗲𝘀 – everyone needs to know who is responsible for what. Risk ownership must be established up front. 𝗣𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲 𝗺𝗼𝗻𝗶𝘁𝗼𝗿𝗶𝗻𝗴 – you can’t just assume contractors are delivering to the standards agreed. You need a robust system of ongoing checks. 𝗩𝗲𝗿𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻 – trust, but verify. What gets checked gets managed. 𝗔 𝗳𝗲𝘄 𝗽𝗿𝗮𝗰𝘁𝗶𝗰𝗮𝗹 𝘁𝗶𝗽𝘀:   1. Don’t recycle generic prequalification forms. Adjust them to fit the scope and the risks.   2. Put a strong monitoring regime in place and keep it active for the life of the contract.   3. Use contractual clauses that enforce agreed safety standards and don’t shy away from penalties where performance falls short. Contractor management isn't just paperwork. It’s about protecting people, projects and reputations. Treat it as seriously as any other high-risk exposure. #contractors